Question

Mention any three difficulties in calculating national income by the expenditure method.

Answer 1

Three challenges involved are:

1. Valuing inventories is problematic due to fluctuations in their prices over time.
2. Calculating depreciation is also difficult, particularly when deciding whether to use the historical cost or replacement cost approach.
3. The expenditure method is difficult to implement in developing countries like India because sufficient data on expenditures is often unavailable.